Want to bet which party wins the House and Senate on Nov. 5? You can now lay money on that question legally, thanks to an unfortunate ruling last Wednesday by a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit. The decision lifted a temporary stay on such wagering issued in September.
The ruling is not the final word. The D.C. Circuit must still review a district court order allowing the practice on the merits. Yet it is a step in the wrong direction: toward turning electoral politics, like professional and college sports, into a locus of gambling. The risks to integrity, actual and perceived, are similar as between sports and politics — except that the latter involves not Saturday-afternoon entertainment but the serious business of distributing power and making policy.
At issue are “event contracts,” financial derivatives through which buyers can hedge risks by essentially betting on whether they actually occur. For example, a beachfront homeowner might buy a contract that pays out if a hurricane makes landfall near the property, as the D.C. Circuit’s opinion explained. In mid-2023, a company called KalshiEx began offering individuals and institutional investors the opportunity to buy event contracts worth from $1 to $100 million based on their predictions of the 2024 congressional election outcome. KalshiEx already offered odds and took bets on “future events” such as the price of bitcoin, the number of launches for SpaceX, Federal Reserve interest rate cuts and the number of hurricanes this season. KalshiEx asserts that event contracts linked to election outcomes simply offer businesses a way to protect against what some call “political risk.”
The federal regulator responsible for derivatives markets, the Commodity Futures Trading Commission, tried to block KalshiEx, arguing it was essentially running the political equivalent of a sportsbook. The CFTC cited a federal law that allows it to bar trading in contracts that “involve” unlawful activity such as terrorism, assassination, war, gaming or “other similar activity determined by the Commission … to be contrary to the public interest.” A federal district judge ruled that KalshiEx’s event contracts on control of Congress did not “involve” such activities; the CFTC appealed to the D.C. Circuit. The latter court’s decision Wednesday allows KalshiEx to keep operating, probably through November, unless the CFTC comes up with new evidence of “irreparable harm” to the public. At some point, the appeals court will decide the legal issue itself, which the judges acknowledged was “close and difficult.”
Immediately after the appeals court ruling, another brokerage company, Interactive Brokers, began offering contracts on the outcome of the Nov. 5 election, including the presidential race, congressional control and key Senate races. Hundreds of thousands of contracts have already been traded.
We hope that the judges side with the CFTC, which has warned it is poorly suited to police a political betting market — because that could involve policing elections themselves. Perhaps it’s true, as defenders of election bets maintain, that the market will self-correct against attempts to rig it, just as stock and commodities markets impose punishing financial losses on short-sellers who guess wrong about the direction of a given price. An attempt to rig the odds on Polymarket, a legal — but offshore — political betting market, failed earlier this year. And no doubt such markets could provide the press and public information they can’t get from polls.
Yet the pursuit of public office and private profit do not mix. KalshiEx prohibits candidates and paid staff members from betting, to avoid conflicts of interest. The temptation will remain for individuals with inside information to place wagers under aliases, as many bettors now do on sports, or to otherwise circumvent the rules. Would there be guardrails to prevent a candidate from throwing an election, or being pressured into doing so? In Britain, there was a scandal this year because Conservative Party politicians had placed (apparently small) bets on the date former prime minister Rishi Sunak would call a general election. Mr. Sunak pronounced himself “very angry” about it, which is probably how U.S. voters would feel if their own politicians engaged in such shenanigans.
Perhaps in a more settled, consensual democracy, the benefits of legalized high-stakes election betting might outweigh the risks. However, in the United States today, it seems likely to fuel public distrust in the process already inflamed by former president Donald Trump’s false claims of election theft and many other conspiracy theories. U.S. political culture does not need to let corporations and wealthy individuals wager millions of dollars on elections with one hand while delivering donations to candidates with the other.
We hope the D.C. Circuit eventually reaches that conclusion. The optimal solution, however, would be the legislative ban recently proposed by Sen. Jeff Merkley (D-Ore.). (Maryland’s Chris Van Hollen (D) is a co-sponsor.) There can be no ambiguity on this point in the law because there can be no ambiguity about the integrity of our electoral processes.
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